The college decision-making process, while complicated for all families, is often disproportionately complex for those in the lowest income groups, who often make decisions that result in larger amounts of student debt and lower rates of academic success, according to a literature review from nonprofit behavioral design consultancy ideas42.

The review covered 250 papers and articles that examine financial decision-making throughout the college enrollment process, focusing on the challenges related to consumer information and financial capability of attending college. According to the review, 93 percent of high schools students have aspirations of attending college but less than 60 percent actually expect to attend. Furthermore, misperceptions about the affordability of college often limit the schools that students and families consider during the pre-application and application stages.

Before they even apply for college, students and families overestimate the cost of college by as much as 200 percent and half of prospective students overestimate their loan payments by 50 percent, indicating a significant lack of understating about the true cost of college, according to ideas42. Low-income and minority parents are the most likely to overestimate the cost of college, the literature review said, and to preemptively decide that a particular institution is not an option for their student.

The students who overestimate the cost of college are also the least likely to apply to selective institutions. The review shows that only 8 percent of high-achieving, low-income students are considered “achievement typical,” applying to one well-matched school, at least one safety school, and no non-selective schools.

According to the review, many students also don’t place enough emphasis on school quality indicators like the average amount of debt or graduation rates, instead placing more emphasis on things like distance from home. One study showed that 57 percent of students enrolled at public, four-year institutions are within 50 miles of home.

Meanwhile, during the college application process, students are faced with a “complex financial aid process,” the review said, that can either discourage them from applying for financial aid entirely or at least lead them to make financial decisions that are not in their best interest. For example, the review shows that 61 percent of surveyed students who did not file the FAFSA thought they were not eligible for aid, including one-third who would have qualified for the Pell Grant if they had filed. Ninety-two percent of households with incomes of less than $50,000 are awarded aid packages with Pell Grants, but nearly half of students in that income bracket are unfamiliar with the grant program.

Students are also borrowing in ways that are not considered prudent, such as borrowing private student loans when they still have eligibility for federal loans or have not filed the FAFSA. For example, 50 percent of private loan borrowers attend institutions where tuition and fees are less than $10,000 and 47 percent of private loan borrowers borrowed amounts that were smaller than what they could have borrowed in federal Stafford loans, which provide better protections and terms. More than two-thirds of student loan borrowers also have reported misunderstanding or being surprised by some aspect of their student loans, including 24 percent of Millennials who think their student loans will be forgiven, according to the ideas42 review.

Students also continue to struggle with finances once they are enrolled in college, putting their academic success at risk. Thirty-one percent of students that dropped out of college indicated in previous studies that they did so for financial reasons, and over half reported being stressed that they do not have enough money to last a semester of school. The need to work is the top reason students cite for having to drop out of school, according to the review.

So what can be done? Ideas42 has several recommendations to help combat the misperceptions about college cost and the financial aid process, including:

Redesigning college search tools so that net price by income is emphasized;

Building a streamlined net price calculator and replacing sticker price with alternative information;

Creating a “turbotax” for the FAFSA; and

Offering financial aid advising at a larger scale through the use of virtual advisors.

To better assist students who are currently enrolled in college but may be experiencing financial difficulties, ideas42 recommends:

Tailoring financial products to the student experience, and offering them to students;

Integrating planning and tracking tools into the student experience; and

Enhancing and testing emergency aid programs for students.

Publication Date: 9/2/2016

Joseph S |
9/2/2016 10:51:32 PM

There is no doubt that there are hurdles for many of our students, but with those students who come from low income families, they have ONE THING in their favor - they receive good proportions of financial aid relative to their overall cost of education. For example, the poorest of students financially, who attend CUNY in either a two or four year programs, gets the FULL package of NYS TAP and federal Pell. Why are they borrowing more? True the budget is such at the schools there, so that they can justify giving the student a loan, but why? why is because the student wants to have MORE free dollars to live and socialize and live as if he or she was graduated from college, instead of being in college. The students want more as if they were graduated from college already. No, the neediest of student may need more $$$$$, but rather need to hear that they have enough for school, but NOT enough for outside the school environment. Tough stance on financial aid, but it needs to be stated.

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